Archive for September, 2005

  • Google Watch
    , September 27th, 2005 at 11:38 am

    If you go to Google today, you’ll see that today is the search engine’s 7th birthday. Happy Birthday!!
    Wait a minute! Didn’t they just celebrate their 7th birthday three weeks ago? It turns out, Google has a few birthdays. Search Engine Watch is on the case.

  • Frontier Airlines
    , September 27th, 2005 at 10:01 am

    One of the best ways to look for a good stock to buy is to find the most-unloved industry, and pick out that sector’s best stock. It’s no secret that airlines stocks have performed horribly. Make no mistake, the industry is in rough shape, but there are good stocks out there. For example, I think the industry’s woes have given us a good opportunity in Frontier Airlines. The stock is now below $10.
    Frontier has a lot going for it. For one, it’s an airline that’s not in bankruptcy. That right there is a big advantage over it competitors. Frontier is small regional airline based in Denver with a solid balance sheet. The company has switched to using all Airbuses. Frontier has slowly expanded its market share.
    The airline is popular with its passengers. The company is ranked near the top in customer satisfaction surveys. The downside is rising fuel costs. Frontier is one of the least efficient airlines in handling higher fuel prices. The company should post third-quarter profits in late October. Frontier has posted better-than-expected earnings for the last two quarters.
    Frontier was originally based in Denver, one of United’s hubs, to piggyback on their business. Now that United is doing so poorly, Frontier can actually take some of United’s core business.
    Today, the Wall Street Journal highlights Frontier’s growing service to Mexico. Two years ago, Frontier flew 33,000 passengers to Mexico. Last year, it flew nearly 100,000, and this year it will fly over 200,000 people to Mexico.

  • GM’s Debt Downgraded Again
    , September 27th, 2005 at 9:34 am

    GM’s outlook is actually getting worse. I didn’t think that could even happen. Its debt is already rated as “junk.” Today, Fitch lowered its rating to even junkier junk (double-B). The Delphi story is going to end soon and it’s not going to end well.
    Here’s a short history of GM’s debt rating. It wasn’t that long ago that GM was one of the bluest blue chips on Wall Street. Last quarter, GM lost over $250 million, and over $1 billion in the quarter before that.

  • SEC Investigating Taser
    , September 27th, 2005 at 9:19 am

    The SEC said it’s expanding its investigation into Taser.

    The U.S. Securities and Exchange Commission has now upgraded its probe to a formal investigation, allowing it to subpoena documents. The SEC had opened an informal probe of the company over statements about the safety of its stun guns and a distribution deal struck in December 2004.
    Taser also said it understands the SEC is looking into the possible unauthorized acquisition of material nonpublic information by individuals outside the company in an effort to manipulate Taser’s stock price.
    Taser shares were down 8.6 percent to $6.68 Tuesday in premarket trading on the Inet electronic brokerage system.
    Taser has stood by the safety of its weapons, saying the stun guns have never been named as the primary cause of death when suspects were in custody.
    Taser Chief Executive Rick Smith said in a statement that he hoped the SEC probe would address “all pertinent issues,” including what he said was data indicating that “there may be a large, improper, naked short position” in the stock.

    The stock is down sharply in the pre-market. The stock is down over 75% since the beginning of the year. However, Rich Smith, at the Motley Fool is still bullish on Taser.

  • Citi Ungrouped
    , September 26th, 2005 at 11:50 am

    Tom Brown has a “modest proposal” to increase Citigroup’s value. Break it up.

    I should say up front I was never a big fan of the supermarket strategy that was behind the 1998 creation of the Citi monolith in the first place. Huge scale doesn’t count for much in financial services, for one thing. And in financial services, smaller, focused players tend to outcompete large, diversified ones. That’s why, for instance, community banks reliably take deposit market share from the large national banks. And it’s why the monoline card industry was able to drive all but a handful of players out of the card business. The idea behind Citi was flawed from the beginning—which is one reason the stock’s P/E has eroded steadily for the past seven years.
    By contrast, a breakup of the company would be a great strategic move and profound gesture to shareholders and competitors. In our view, a leaner, more focused group of legacy Citi businesses would emerge and be vastly preferable to the current bureaucratic Byzantium. The units would be much more effective competitors as smaller, focused players than they are now. So management can and should admit the obvious: the company is so big that, strictly by the law of large numbers, it can no longer generate meaningful company-wide organic growth. To put matters in perspective, if the company were to grow by 9% annually, net income would have to rise by $1.6 billion in 2006, which is roughly the equivalent of creating a brand-new BB&T. Incremental acquisitions, meanwhile, would have to be huge to make a meaningful difference, and would be tough to execute well (as management has publicly conceded).

  • Reuters Vs. Bloomberg
    , September 26th, 2005 at 8:52 am

    The same speech on the same day is covered by different journalists.
    Bloomberg:

    U.S.’s Bernanke Is ‘Pretty Optimistic’ About Economy

    Reuters:

    Energy prices risk to US economy—Bernanke

  • Wall Street Art
    , September 25th, 2005 at 5:58 pm

    Four years ago, the stock exchange repealed its requirement for engravings on stock certificates. To some poeple, this is a lost art.
    Bankers Trust.jpg

  • What Consistent Performance Can Tell Us
    , September 23rd, 2005 at 2:03 pm

    Haywood Kelly at Morningstar has an interesting article on corporate consistency. He found that companies with high sales growth rates tend to revert to the mean fairly quickly. But companies that are able to maintain high returns-on-equity tend to maintain them. This makes sense since sales growth can simply be a part of luck, but ROE is a better measure of management. A skilled management is likely to stay skilled.

  • Boring Insurance Stocks?
    , September 23rd, 2005 at 12:34 pm

    I often hear people say that insurance stocks are “boring.” That may be true, but it doesn’t mean that they’re not profitable. Despite the recent devastation from Hurricane Katrina, two of our insurance stocks (Brown & Brown and Progressive) are at new highs today.

  • Oracle’s Earnings
    , September 23rd, 2005 at 11:54 am

    After yesterday’s close, Oracle reported earnings of 14 cents a share. That was in line with expectations, although sales were slightly below forecasts. The company expects to earn 80 cents a share for the next fiscal year, which means the stock is going for about 16 times next year’s earnings. Don’t be fooled, I still think Oracle is overpriced. When you get right down to it, the company’s core business is not growing.

    But the sluggish sales of Oracle’s flagship database systems, which had been a mainstay of the company’s growth, surprised analysts. Oracle reported $502 million in combined sales of its database software and “middleware,” additional software used to deliver Internet-based applications. That compared with $494 million in the year-earlier period.

    That translates to a growth rate of 1.6%. What does Larry have to say?

    Oracle Chief Executive Larry Ellison said he didn’t think “flattish” database results were “indicative of anything,” and primarily were the result of a tough comparison with last year’s results, when database sales grew 20%. “It’s going to be very, very difficult for us to sustain that the following year,” he said.

    I’m not sure if the earnings isn’t “indicative of anything.” It may not be indicative of future “flattish” growth. But it’s absolutely not indicative of future strong earnings growth.

    I’m also concerned about Oracle’s massive buying spree. The company is going to Seibel, plus it also bought PeopleSoft recently. Oracle has also bought Retek, ProfitLogic and I-Flex, plus several smaller firms. That’s a lot for a company to manage, and I’m generally not a big fan of mergers anyway (Morgan Stanly for more). I would stay away from Oracle until the company shows that it can grow its core business again.